UCITS V And Proposals To Cap Remuneration For Fund Managers

Author:Mr Fionán Breathnach and Mark Browne
Profession:Mason Hayes & Curran
 
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The European Parliament has voted at a plenary session on the draft UCITS V directive.

On 3 July 2013, the European Parliament (the "Parliament") took a vote at a plenary session on the draft UCITS V directive ("UCITS V"). At that plenary session a number of amendments to the UCITS V text were adopted and some of the proposals previously put forward by the Parliament's Economic and Monetary Affairs Committee ("ECON") were rejected.

UCITS V proposes the introduction of remuneration policies and practices for those in senior management and those who are considered to have a material impact on the risk profile of a UCITS when making decisions. The purpose of this proposal is to ensure that such policies and practices are in line with the aim of sound risk management and that decision taking inconsistent with the UCITS's risk profile is avoided.

Proposals Rejected by Parliament

Some of the UCITS V proposals suggested by ECON that have not been adopted by Parliament include:

  1. The imposition of a cap on fund manager bonuses at 100% of the fixed salary secured;

  2. Performance fees only being permitted where UCITS market exclusively to MiFID investors;

  3. Proposal that where an underperformance of a benchmark occurs, variable remuneration for fund managers should be reduced.

    However, in rejecting ECON's amendments, Parliament has approved revised text stating that variable remuneration should be reduced where there is "subdued or negative financial performance of the management or of the UCITS concerned".

    Key Amendments to UCITS V Text

    In approving the UCITS V text, Parliament made a number of amendments as follows:

  4. Scope of New Remuneration Rules

    The draft UCITS V text regarding the categories of staff subject to the UCITS V remuneration provisions is now more detailed and includes "any employee and any other member of staff at fund or sub-fund level who are decision takers, fund managers and persons who take real investment decisions, persons who have the power to exercise influence on such employees or members of staff, including investment policy advisors and analysts, senior management and any employees receiving total remuneration that takes them into the same remuneration bracket as senior management and decision takers".

  5. Guidelines to be Issued by European Securities and Markets Authority (ESMA) The revised UCITS V text now provides for guidelines to be issued by ESMA on remuneration policies and the different principles to be applied...

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